Greg Epp

Building Better Manufacturers

The Theory of Constraints

What is the theory of constraints?

The theory of constraints (TOC) was introduced in 1984 by Eliyahu M. Goldratt in his book titled The Goal. In this novel, Goldratt introduces us to a simplified management philosophy that challenges the cost accounting mentality of modern manufacturing. His philosophy involves looking at manufacturing in three measures: throughput, operational expenses, and inventory. Inventory is defined by Goldratt as all the money the system has invested in purchasing things in which it intends to sell. Operational expense refers to what the system spends in order to turn inventory into throughput. Finally, throughput is the rate at which the system generates money through sales.

What is TOC?

In The Goal, Goldratt was challenging the cost accounting norms by categorizing inventory as an expense until turned into throughput or sales. In cost accounting, finished inventory is considered ‘sold’ even when it’s not. Without getting into great detail, this often prompts companies to build inventory to make the books look good. In reality, excess inventory costs money to build and only truly adds to the bottom line when sold. The aim of TOC is to reduce inventory and increase throughput.

An example of TOC in action would be as follows. You see a production order for 250 widgets come through your department destined for inventory. You set up the machines and start running the parts. A day into the three-day production run, you get an order for 10 parts. You’re asked to shut down the production run of widgets, do a change-over, and run the 10 parts. You complain as it will take hours to do the change-over and then change back again. And all for just for 10 parts. The widgets are for inventory and although there is a theoretical cost to stopping production, the throughput from their sale will only be realized when sold. The 10 parts, however, are for sale and need to go to the customer. By prioritizing those parts, you turn them directly into throughput or sales for the company. This simple realization can transform how your company does business.  A work order that is directly for sale is always prioritized over inventory-building work orders.

What are bottlenecks?       

So what does throughput, inventory and expenses have to do with constraints?  The TOC philosophy is based on the idea that the entire manufacturing process (rate of throughput) is governed by its slowest operation. Like a relay race, your company can only go as fast as its slowest runner.  The aim is to identify these bottlenecks, or constraints, and eliminate them.  

In the book, The Goal, Goldratt refers to a group of boy scouts hiking. With the fastest kids out front, the line begins to stretch and get spread out (the line represents inventory). It quickly turns into chaos as the slower kids are running to catch the faster ones. Eventually, communication breaks down and the hike turns in to a disaster. Alternatively, the main character realizes if he puts the slowest kid (the constraint) up front and shares his load (his backpack) with the others while keeping them behind the constraint, they will actually get their destination sooner as the slowest kid now is getting assistance from his scout mates as well as setting the pace for the group.

When I first started in my career as a process improvement specialist, I tried my hardest to improve every single CNC program, every operation, and reduce waste everywhere I could find it. If it took me 10 hours to rewrite a program in order to shave one minute off a cycle time, this would pay back 1000 times over, right? Not so. If the next operation down the line still takes twice as long as the one you just improved by one minute, you didn’t achieve anything in the overall throughput of the system.

It is paramount to identify what operations are the slow ones and dedicate your efforts to “exploiting the constraint” or speeding it up as much as possible. It can be daunting to improve every single operation in the facility simultaneously. TOC provides an alternative that allows you to focus your time and energy in the most beneficial way. See my blog on takt time for more information on how to identify slow cells.

Key points   

Keep TOC simple, here’s how:

  • Decide what your slowest operation will be (often forming or welding).
  • Calculate your Takt time.
  • Make your slowest operation (Constraint) as efficient as possible.
  • Cross-train workers and have other vendors who can do the work of this cell during peak times.
  • Teach every department about the constraint, even office staff. The constraint and takt time is like the heart of every manufacturing facility and key to every single operation.

For more information on TOC, please see these helpful links:

Written by Greg Epp

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